Medtronic, big health companies look to dodge U.S. taxes

Yet another large American medical company apparently is looking to buy a foreign rival and move its headquarters overseas to take advantage of lower taxes. And the losers would be the Treasury, American workers and the U.S. economy.

Medical-device maker Medtronic Inc.
of Minneapolis said Sunday it plans to buy Ireland-based Covidien PLC in an almost $43 billion deal, with the stock-and-cash deal valued at $93.22 a share.

The deal will see the larger Medtronic move its principal executive offices to Ireland, where the smaller Covidien
is located, confirming reports out from The Wall Street Journal and others over the weekend. Irish taxes on business are much lower compared with those in the U.S.

Another major U.S. medical company, Pfizer Inc.
, recently drew attention to the technique of tax inversion during its failed attempt to acquire AstraZeneca PLC in the U.K. Pfizer would have moved its headquarters out of the U.S. if the deal had been consummated.

The resulting furor spurred Democrats in Congress to seek a new law to make tax inversions more difficult, but it has little chance of passing amid Republican opposition.

The American medical-device industry has seen a round of mergers lately as companies try to lower costs in response to Obamacare, the health reform law that went into effect in 2013. The law tries to limit how much is spent on health care and one controversial provision taxes medical device makers to help pay for Obamacare.

By acquiring foreign companies and moving their headquarters overseas, U.S. medical-device makers can take advantage of lower tax rates to save costs and boost earnings. And whatever corporate profit they keep outside the U.S. is also shielded from American tax law — they only get taxed on the profit if they bring back it back home.

Though good for companies, tax inversion deprives the U.S. of revenue and makes it harder to pay for government or balance the federal budget. It also hurts the U.S. economy by encouraging companies to invest and hire outside of America.

Democrats are up in arms about the growing popularity of tax inversion and they want to tighten U.S. laws to reduce how often it occurs. If it keeps happening, they could try to make it a big issue for the fall elections by attacking Republicans as defenders of big business.

Republicans, for their part, blame a punitive U.S. tax code for encouraging American businesses to move overseas. The U.S. has one of the highest statutory corporate tax rates among developed countries and it’s one of the few nations to tax the profits that American companies earn abroad

The answer, conservatives say, is to reduce corporate taxes and simplify the tax code to keep U.S. companies at home and lure foreign companies to base their headquarters here.

In all likelihood, neither party will get its way unless there’s a major public outcry over tax inversion. And that seems unlikely.

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